Northwest Territories braces for devolution, seeks more infrastructure funding for resource development

CALGARY — The Northwest Territories is seeking permission to more than double its borrowing limit to $1.8-billion to fund infrastructure as the northern region prepares to take control of its natural resources.

The N.W.T. is set to get province-like control over mineral rights, including the ability to collect royalties on oil and gas production, under a pact called devolution that starts Tuesday. Officials keen to accelerate drilling and mining activity in the north have appealed to Ottawa to boost the region’s borrowing limit from $800-million today to fund power lines and roadwork needed to support development.

“It’s very important for us,” said David Ramsay, minister of industry, tourism and investment for the region, who will head a newly created oil and gas regulator. “If you look at trying to attract investment, the government of the Northwest Territories needs to be investing in itself.”

A rush to develop the Arctic territory’s resources has long been hampered by high costs and remote distances from southern markets. The lack of infrastructure is seen as a significant impediment to tapping the Central Mackenzie Valley’s Canol shale, which is promoted by the N.W.T. government as a top oil prospect.

In the latest sign of difficulty, Calgary-based MGM Energy Corp. said last month it wouldn’t drill any wells in the area next winter after it came up empty-handed in a search for a partner. The company is now considering a buyout from Paramount Resources Ltd., which is offering to buy the shares of MGM it doesn’t already own in a $50-million deal. Paramount already owns about 14% of MGM’s shares.

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MGM, based in Calgary, had partnered with Royal Dutch Shell PLC on one well in the potentially rich shale prospect, but needed a new partner to fund further development. The company estimates its main exploration licence, called EL466, holds 625 million barrels of discovered oil in place.

“There’s a large accumulation of oil there and it’s high quality oil, but getting it out of that rock is not going to be easy,” MGM president Henry Sykes said in a recent interview.

“And as we’ve pointed out to people in the North, it’s not unique. There’s lots of shale oil in North America and this is the farthest away from markets, and it’s also one of the most expensive places in Canada, if not the world, in which to operate.” He did not return a call Friday.

Larger companies are making headway. Husky Energy Inc. is building its own all-season road to access work sites in the region. Rival ConocoPhillips Co. this winter started drilling two horizontal wells on lands in the formation as part of a program that will mark the first use hydraulic fracturing, or fracking, in the north.

Houston-based Conoco is also assessing construction of a winter road and recently applied to build a 325-person all-season work camp, according to documents filed with the local Sahtu Land and Water Board.

The work is “an indication that nobody’s pulling up stakes because of devolution,” said Doug Matthews, a Calgary energy consultant. He said the agreement could accelerate regulatory decision-making in the North by reducing the number of regional boards involved and giving companies greater access to local bureaucrats.

But the transfer is being viewed with a mixture of excitement and trepidation. “It’s such a huge file to take on,” Mr. Matthews said in an interview. “There’s going to be a big learning curve for the staff.”

To help with the transition, the N.W.T. will draw on professional and technical help from Canada’s National Energy Board, as well as regulators in Alberta and British Columbia, Mr. Ramsay said. The newly created oil and gas regulator will oversee onshore activity outside the Inuvialuit Settlement Region.

Ottawa will retain oversight of more controversial drilling in the Beaufort Sea, where a showdown looms over regulations that compel companies to drill a same-season relief well to counter a possible blowout in the icy waters. Companies with plans to drill in the Arctic have pushed regulators to consider equivalent means of snuffing out a rogue well. “That’s a big issue that still has to be fought out,” Mr. Matthews said.

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